In European crisis, Obama sees risks back home

JIM KUHNHENN
Associated PressPublished: November 3, 2011 5:03PM

CANNES, France (AP) -- His political fortunes and his nation's economy at risk, President Barack Obama on Thursday implored European leaders to swiftly work out a eurozone rescue plan, aware of the potential fallout at home if they fail.

Obama, at the French Riviera for a summit of the Group of 20 leading industrialized and developing economies, pledged to be a partner in helping the Europeans cope with the economic emergency. But his aides insisted that Europe's problem, brought on by the threat of a Greek default, was one it had to fix.

Taking his jobs-first message abroad, Obama said the goal was getting people back to work. "That means," Obama said, "we're going to have to resolve the situation here in Europe."

For Obama, an incumbent seeking a second term in a time of economic peril, the stakes in Europe are immense.

Europe is the largest U.S. trading partner, and its intertwined financial institutions mean that a worsening crisis in Europe inevitably would spread across the Atlantic. The timing could not be worse as the weak U.S. economy is beginning to show some signs of life even with the unemployment rate stuck at 9.1 percent.

Obama's economic options and his leverage are limited, and the European debt crisis consumed all attention at the summit meeting.

The Greek government was in danger of collapsing over Prime Minister George Papandreou's call for a public vote on the rescue deal. The Greek leader later scrapped the referendum but ignored repeated calls to resign, while the eurozone remained in turmoil.

Obama declared his solidarity with French President Nicolas Sarkozy and German Chancellor Angela Merkel, two architects of the debt bailout plan. Obama said resolving the financial crisis is "the most important aspect of our task over the next two days."

But with aspects of the rescue undefined, he added: "We're going to have to flesh out more of the details about how the plan will be fully and decisively implemented."

The plan would cut by half Greece's debt and create a $1.4 trillion firewall to protect other vulnerable European economies. It also would impose strict and unpopular austerity measures on Greece.

A Greek default alone would not necessarily send ripples to the United States, as long as the bailout fund could contain the damage and keep countries such as Italy or Spain from going into a financial swoon.

Publicly, Obama, Sarkozy and Merkel said little about the drama in Greece.

Obama met with Sarkozy for about an hour and said afterward they discussed Greece and "how we can work to help resolve that situation as well." The U.S., he said, "will continue to be a partner with the Europeans to resolve these challenges."

At a meeting with Merkel, Obama spoke of the need to "make sure that not only is the eurozone stable but the world financial system is stable as well."

White House aides said the upheaval in Greece showed the need to put a rescue plan in place regardless of the outcome in Athens. "The steps that need to be taken are clear, again, irrespective of the political personality or situation at any given moment," said Ben Rhodes, a deputy national security adviser.

Obama's participation in the G-20 is more limited than his role in the past four summits he has attended.

Obama's central message has been that economic growth must be balanced, and he has called on surplus nations to use their reserves to help spur growth.

Rhodes said the concluding agreement from the G20 nations will address some of the issues Obama has been pressing, including a signal that China and other emerging economies will increase demand within their economies.

Yet Obama's push been overwhelmed by the immediate crisis. Obama is pressing for a quick resolution, but cannot offer any tools of his own to give the Europeans a boost.

Barbara Perry, a political scientist and senior fellow at the University of Virginia's Miller Center, said Obama's plight is evidence of globalism's effect on the American presidency.

"He was getting some good economic news, things were picking up with the stock market," Perry said. "You would think, 'Oh, finally, the president gets a break.' And then something that, let's face is, he has no control over. ... If he thinks Congress is beyond his control, the world stage, with this world economy -- that's truly beyond his control."

Among the questions facing Europeans is how they will amass a $1.4 trillion bailout fund. The Obama administration has no desire to pour money into the package; few can imagine Congress ever signing off. That has left the Europeans looking to China to help build the fund.

"It's our belief that our ability to contribute, our ability to lead, and our ability to influence the outcome of these sorts of issues is not tied necessarily to having the American taxpayer pay for every problem," said Mike Froman, a deputy national security adviser who focuses on international economic matters.

Rhodes said talks were taking place on how the International Monetary Fund, using existing resources, could help Europe build a sizable fund that would help contain any financial damage caused by a Greek default. The United States has significant influence over the IMF because it is the fund's largest stakeholder.

In their discussions, Obama, Merkel and Sarkozy also discussed how to require financial institutions to help cover the costs of financial bailouts. Merkel and Sarkozy prefer a tax on financial transaction. The U.S. favors a fee on large financial institutions.

Following their meetings, both sides tried to paper over their differences. Sarkozy said the two sides had reached a "common analysis that the world of finance must contribute to solve the problems of today."

Froman acknowledged the differences, but suggested there was "broad consensus" about the ability of the U.S. and Europe "to pursue this in their own way, whatever way they see to be most effective."